IRD warns on salary tax avoidance

Inland Revenue is advising companies that voucher-based salary packaging - an arrangement replacing part of a person's wage or salary with vouchers - may constitute tax avoidance.

Group Tax Counsel, Graham Tubb, said that the Commissioner of Inland Revenue's view was that the commercial and economic reality of certain voucher schemes were the equivalent to wages or a salary paid to employees.

Inland Revenue is focusing on particular arrangements on a case-by-case basis where someone has signed an employment contract and agreed for part of their regular income to be substituted for vouchers of an equal value.

"The vouchers are often in the form of a debit card and can be used to pay for things such as vehicle, groceries, and other household expenses instead of taxable income," Tubb said.

Under such arrangements, vouchers are not treated as income for the employee and PAYE is not deducted.

They can be used by people to reduce their child support, student loan or KiwiSaver obligations or claim a larger Working for Families Tax Credit entitlement.

Employers who offer vouchers to their staff can reduce their contributions to KiwiSaver.

"Employers can also claim GST on the cost of purchasing the vouchers but GST is not returned to Inland Revenue on their distribution to their employees so there is a loss to Inland Revenue and taxpayers," Tubb said.

The IRD is warning filing incorrect tax returns can incur serious penalties and those at risk following the alert need to consider a voluntary disclosure before it is too late.